Six of the oil industry’s biggest companies are not finding enough oil and gas to fully replace volumes produced, causing proven reserves to dwindle and threatening revenue needed to bankroll energy transition plans, analysts say.

The drop, according to Norway-headquartered Rystad Energy, could result in reserves running out within 15 years if large commercial discoveries are not made quickly.

The analysis this week comes despite proved reserve additions from Total SE and Eni SpA along with some massive oil finds in recent years, including more than 9 billion barrels of oil equivalent (Bboe) of recoverable resources discovered offshore Guyana by an Exxon Mobil Corp.-led consortium. It also comes as the world’s near-term demand for oil and gas picks as COVID-19 vaccination rates and global economic activity rises.

About 10%-15 % of the guided cumulative E&P capex of about $58 billion from the so-called “Big 6” is likely to be spent toward exploration, Palzor Shenga, senior upstream analyst for Rystad Energy, told Hart Energy.

Discovered volumes, so far, this year are down: first-quarter 2020 industry total of 1.2 Bboe, down from 2.7 Bboe a year earlier.

“Despite the modest exploration results recorded so far this year, 2021 has significant potential in terms of wildcat exploration, with South America and Africa among the key regions to watch,” Shenga said. “Therefore, these wells will determine whether the majors will be able to maintain or improve their reserve replacement ratios.”

Forecasts show demand growth through about 2030 as improving living standards create more need for oil in developing nations even as developed countries increasingly aim to add more alternative forms of energy to their mix.

“The ability of Big Oil to generate future revenues will continue to depend on the volume of oil and gas the companies have at their disposal to sell,” Parul Chopra, vice president of upstream research at Rystad Energy, said in a news release. “If reserves are not high enough to sustain production levels, companies will find it difficult to fund expensive energy transition projects, resulting in a slowdown of their clean energy plans.”

The report released May 5 by Rystad focuses on the proved oil and gas reserves of Exxon Mobil Corp., BP Plc, Royal Dutch Shell, Chevron Corp., Total SE and Eni SpA.

Falling Proven Reserves

Combined, the companies’ proven reserves dropped by 13 Bboe in 2020, according to Rystad. Contributing factors included less oil and gas exploration spend amid continued focus on capital discipline and the energy transition. The global pandemic also posed challenges.

Exxon Mobil: Proved reserves down about 30% to 15 Bboe. Rystad said the fall was mostly related to gas assets the company purchased from XTO Energy in 2009. Earlier this year, Exxon said its “year-end 2020 proved reserved are expected to have been produced by 2040.”

Shell: Proved reserves down 20% to 9 Bboe. Declining gas reserves accounting for two-thirds of the drop, including a 600 MMoe revision in the company’s Australian projects, Rystad said, while falling liquids reserves in the U.S. and South America accounted for the rest of the loss. Its reserves to production ratio dropped to 7.4 years, Rystad said.

BP: Proved reserves down about 5% to 18 Bboe as it sold some assets, including in Alaska. BP’s annual report shows natural gas represented 41% of the reserves.

Chevron: Proved reserves down 3% to 11.1 Bboe, a U.S. Securities and Exchange Commission filing shows. Rystad said impairments were behind reserve losses for Chevron, though it gained some 2 Bboe of proven reserves through its acquisition of Noble Energy.

Eni and Total: Both showed small drops in 2020, compared to the year earlier, according to the companies’ financial reports. Total reported proved reserves of 12.3 Bboe, down slightly from about 12.7 Bboe, while Eni reported proved reserves of about 6 Bboe, down from about 6.3 Bboe.

Total also enjoyed significant exploration success last year in the Guyana-Suriname basin, while Eni did well thanks to success in Africa,” Rystad said.

For the oil and gas industry as a whole, discovered volumes have declined.

Discovered Volumes Down

First-quarter 2021 discovered volumes total 1.2 Bboe for the industry, down from 2.7 Bboe a year earlier, Rystad data shows, as exploration success rates onshore and offshore fall.

“The lack of availability of easily exploitable prospects, combined with dying exploration activity in once rich onshore areas such as the Middle East, have led to the decline in the onshore success ratio,” Shenga said in March. “Most of the easily mappable structural prospects with shallow reservoirs have already been thoroughly explored, leaving wildcatters to struggle primarily with technically challenging prospects.”

oil-and-gas-wildcats-Rystad-Energy
Source: Rystad Energy

Only 45% of the six majors’ production have been replaced from new discoveries in the past six years, according to Rystad, which noted Exxon’s 9 Bboe of discovered volumes offshore Guyana lifted it above its peers.

Though exploration has become more challenging with easy-to-find oil gone, companies are pursuing both infrastructure-led exploration campaigns and looking for hydrocarbon resources in frontier areas.

“There is a good balance between the prospects within the frontier and mature basins,” Shenga said. “Hence, these companies are not shying away from investing in proving the hydrocarbon potential of a prospective basin.

High-ranked prospects to be drilled this year provide hope.

Rystad put South America and Africa among the key regions to watch. These include a few wildcat and appraisals planned offshore Guyana and Suriname to be drilled by Exxon along with planned exploration activity by Total in the Guyana-Suriname Basin and Africa.